Catch-Up Reclass / Changes in plan-imposed limits during the plan year

[Guest m2b2]

Thanks in advance for your help!

I have a client who changed their HCE deferral plan-imposed limit three times during the plan year. Each time increasing the amount the HCE(s) could contribute to the plan. How would you reclass what contributions are catch-up and what are not at year end? On a payroll basis or just based on the plan-imposed limit last in place?

Thanks!

[JanetM]

If it were me, I would use the rate in effect at year end. Now if they due a true up match you may have a problem doing that.

[Tom Poje]

when in doubt, read the regs

1. [1.414(v)-1(b)(2)(i)(A)] Sum of $ amounts of the limits for each payroll period.

or

2. [1.414(v)-1(b)(2)(i)(B)] weighted average

(without looking it up, the example in preamble was something like "the limit was 8% for 6 months and 10% for 6 months, so use 9%)

while not quite the same as you described, the example I used at an ASPPA conference was as follows:

Plan has a cap of 10% on deferrals. Ee defrred 10% plus a little extra each month for awhile, then stopped deferrals in July

comp deferral possible catch-up made

Jan 10,000.00 1000.00 10% 416.66

Feb 10,000.00 1000.00 10% 416.66

Mar 10,000.00 1000.00 10% 416.66

Apr 10,000.00 1000.00 10% 416.66

May 10,000.00 1000.00 10% 416.66

Jun 10,000.00 1000.00 10% 416.66

Jul 10,000.00 1000.00 10% 416.66

Aug 10,000.00 0.00 0% 0.00

Sep 10,000.00 0.00 0% 0.00

Oct 10,000.00 0.00 0% 0.00

Nov 10,000.00 0.00 0% 0.00

Dec 10,000.00 0.00 0% 0.00

Tot 120,000.00 7,000.00 2916.62

Total deferrals is only 9,916.62, which is < 10%. No limit reached, no catch up for the year!

suppose the reason the ee quit was because the cap was changed from 10% to 3% in Aug.

so the most he could have deferred from Aug - Dec would be 300 * 5 months or 1500.

thus for the year he could have deferred 8500. anything above that would be catch up.

this is an example of the first case.

[Guest m2b2]

Thanks guys! Makes sense Tom!

[blue]

As a follow up questions - is it possible to have a different plan imposed limit for each HCE in the plan? As an example the plan has 15 HCE, would it be possible to have 15 different plan imposed limits?